Take a look at the highlighted categories below and, if one applies to you, read on and see if you can save some money on taxes this year. If it doesn’t apply to you then close this window and get back to doing something productive. I only included categories that I thought would be most applicable to the entrepreneur and independent contractor and I picked out the juicy stuff, the credits and deductions that might save you the most money.
If you bought a home….
- Homebuyer credits – This is one of the sexiest new credits out there and also the one with the most misinformation floating around. First of all, it only applies to the purchase of a primary residence, no vacation homes. Second, keep in mind that it’s not just first-time buyers that get the credit, existing homeowners can qualify at a reduced rate. It’s complicated stuff but basically you have to have a contract to buy the home by April 30, 2010 with closing by June 30. The amount you receive is 10% of the price of the home up to a maximum of $8,000 for first time buyers and $6,500 for existing homeowners.
- Mortgage interest and property taxes on your residence continue to be deductible, further sweetening the pot for home owners.
- Energy efficient home with this credit the government strives to curry favor with both homeowners and treehuggers. I constantly get calls from people wanting to know if this or that qualifies and how much. Basically, your retailer will let you know what qualifies.
If you lost your home due to defaulting on your mortgage
- Traditionally, the government has really enjoyed kicking those who are already down and has done so by having them include debt that was cancelled or defaulted on in income. So you lose your home, default on the mortgage, and have to pay taxes on the money that you owed but was forgiven, unless you go bankrupt. Well, if your debt was discharged between January 1, 2007 and January 13, 2013, that debt will not need to be included in income.
If you lost your job
- Continuing along with the kinder and gentler vein of government, if you received unemployment compensation in 2009 the first $2,400 of it is excluded from income.
If you had a baby
Babies are almost as beloved by Congress as homeowners (hey, future revenue to pay for our social security!) and so procreation leads to a boondoggle of sweet tax incentives
- God bless the baby born on December 31 and not January 1 and thereby giving her proud parents an exemption of $3,650. This leads to one of the most offbeat tax planning instruments available, inducing labor.
- Child tax credit of $1,000 for each child under 17 years of age.
- Child care credit – lots of hoops to jump through but worth looking into if your get goes to daycare.
- Adoption credits – adoption is very expensive and this credit is a big help if you are in the process
If you attended school
- The American Opportunity Tax Credit (gotta love the ridiculously grandious names thought of by Congress) can get you $2,500 per year for a degree-seeking student (good for grad school) and is 40% refundable; which means that if you’re a starving student with no income you could get a refund of one grand to take to the bookstore and blow (there’s a no beer provision for use of the refund, really, I just made that up).
- Your cost of education may be 100% deductible if either it maintains or improves skills required by the you in your employment or other trade or business, or it meets the express requirements of the your employer, or the requirements of applicable law or regulations, imposed as a condition to your retention of an established employment relationship, status, or rate of compensation.
Will save money for retirement
- The Roth IRA is the weapon of choice for the young and hungry. Your contribution is not tax free, but your earnings are and the entire amount can be withdrawn tax free upon reaching age 59 1/2 (that’s not as far off as you think!) and the amount you contributed can be withdrawn tax free even earlier with certain restrictions
- With the IRA your contributions are excluded from your taxable income, but you withdraw regular income upon reaching age 59 1/2. With both IRAs the maximum contribution for 2009 is $5,000 for 2009 and you have up until April 15, 2010 to fund them. So if you haven’t gotten around to doing so, there is still time.
Bought a car
- Sales and excise taxes for new vehicles purchased in 2009 are deductible as an addition in the amount of your standard deduction, meaning even if you don’t itemize you get the deduction.
Business
If you lost money
- The 5 year carryback period for losses continues this year. So if your 2009 sucked, you may be able to use those losses immediately against gains for the last five years and get yourself a refund of taxes paid.
Renegotiated a debt
- If you renegotiated a loan, or had debt cancelled, that is called cancellation of debt income and is taxable. If it happened in 2009 then you can defer paying the taxes on it for 5 years and then make payments for another five.
- Alternatively, if the deadbeat above caused you to have bad debts then you can write it off immediately if you have already declared it as income for tax purposes.
Bought new gear
- Section 179 immediate expensing of most assets purchased (excluding real property, some vehicles and other stuff that doesn’t apply to you) will be the tool of choice for most of you.
- There is also 50% bonus depreciation for new purchases that has the advantage over Section 179 that you can use it even if you are showing a loss. This means you can take that loss and carry it back (see above) up to five years to get some money back!
